What is equity in real estate?

Equity in real estate refers specifically to the financial interest that an owner has in a property, which is calculated as the difference between the property’s current market value and the amount still owed on any mortgage or lien against it. This means that equity represents the actual value that the owner retains in the property after accounting for any debts.

If the property appreciates in value over time, the equity increases; conversely, if the owner has taken on additional debt against the property, the equity could decrease. Understanding equity is crucial for homeowners as it can impact decisions such as selling the property, refinancing, or taking out loans against that equity.

The other options do not capture the precise definition of equity. The total amount invested in the property refers to the owner's investment but does not account for how much of that investment has been paid down in relation to the property’s current market value. The increase in property value over time is related to appreciation, not specifically to equity. Lastly, rental income generated by the property does not relate to the ownership interest in the property itself, but rather to the income-producing potential of the real estate. Therefore, the correct answer accurately describes equity as it relates directly to ownership interest in the property.